Question

James Jones is the owner of a small retail business operated as a sole proprietorship.
During 2015, his business recorded the following items of income and expense:

Revenue from inventory sales          $147,000

Cost of goods sold                             $33,500

Business license tax                              2,400

Rent on retail space                            42,000

Supplies                                              15,000

Wages paid to employees                  22,000

Payroll taxes                                       1,700

Utilities                                              3,600

a. Compute taxable income attributable to the sole proprietorship by completing
Schedule C to be included in James’s 2015 Form 1040.

b. Compute self-employment tax payable on the earnings of James’s sole proprietor-
ship by completing a 2015 Schedule SE, Form 1040.

Answer 1

a. Calculation of taxable income

Particulars	Amount
Revenue	147,000
Less: Cost of sales	33,500
operating profit	113,500
Less: Business License	2,400
Less: Rent of space	42,000
Less: Supplies	15,000
Less: Wages Paid	22,000
Less: Payroll taxes	1,700
Utilities	3,600
Taxable income	26,800

B. Calculation of self employment tax

Self employment tax for 2015 is 15.3% of the 92.35% of Net profit from the business if the profit is $118,500 or less

Self Employment tax = 26,800 x 92.35% x 15.3% = $3,786.72